Key Points 

• Subway seeks large franchisees, faces low profits and outdated stores
• Multi-unit operators abandon Subway due to meager earnings
• Low margins and renovation costs discourage potential investors
• Subway aims to move away from small, struggling franchisees

In an effort to modernize its ownership model, Subway is looking for large new franchisees in the United States. However, due to low restaurant profits and dated stores, this is proving to be a difficult sell.

According to two of their advisers, a number of multi-unit operators—the more educated, financially secure franchisees that Subway seeks—examined the possibility of joining the chain's system by purchasing swaths of restaurants but abandoned it after realizing how little money they made.

Low profit margins and the possibility of having to make necessary renovations, according to attorneys Justin Klein and John Gordon, have discouraged their clients.

Since 2016, Subway has closed thousands of its U.S. locations; the company stated a year ago that it wants to move away from its current base of small franchisees, who typically own just one or two stores and are often family-run and barely make ends meet.

More than 15 multi-unit franchise owners who were actively considering methods to expand attended the company's first-ever meeting day in Miami in April.

In order to consolidate and transfer more than 230 existing restaurants, it announced five new agreements with multi-unit operators during that month. Only two of those agreements involved brand-new owners making their initial investment in the chain.

According to a source familiar with the unit economics of the chain and the expansion criteria applied by large multi-unit franchisees, large operators are worried about Subway's store-level margins. The source declined to be named because the information is confidential.